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Sharper Lines Mean Tighter Nets: How the FinCEN’s Latest Priorities are Another Step to Increased Enforcement

In the latest sign that the federal enforcement apparatus is slowly but surely training its sights on white-collar professionals and businesses, particularly financial services, the Financial Crimes Enforcement Network (“FinCEN”) published a list of priorities last week. For the last few years, prosecutors have aggressively pursued allegations of corruption and fraud – at times too aggressively, in the views of many federal judges. Executives willing to roll the dice at trials have increasingly found receptive audiences in judges who have chastised prosecutors for bringing criminal charges where the lines demarking unlawful conduct were not so clearly drawn. The publication of the FinCEN priorities is another step in drawing those lines.

Developments This Year

Earlier this year, Congress overrode then-President Trump’s veto to pass the Anti-Money Laundering Act of 2020 (“AMLA”) which included greatly increased incentives for whistleblowers to report on money laundering and Bank Secrecy Act (“BSA”) violations, broadened BSA’s coverage to capture dealers of antiquities and cryptocurrency, and gave the U.S. Treasury Department and the U.S. Department of Justice authority to obtain records from foreign financial institutions.

Just over a month ago, on June 3, 2021, the White House published the Memorandum on Establishing the Fight Against Corruption as a Core United States National Security Interest (the “Memorandum”). In the Memorandum, President Biden sets forth a policy of “effectively preventing and countering corruption and demonstrating the advantages of transparent and accountable governance” and commits to “lead efforts to promote good governance; bring transparency to the United States and global financial systems; prevent and combat corruption at home and abroad; and make it increasingly difficult for corrupt actors to shield their activities.” The Memorandum directs 15 federal agencies to collaborate in a 200-day “interagency review” to enhance the government’s ability to fight corruption.

FinCEN’s AML/CFT Priorities

In one tangible result of those anti-corruption efforts, FinCEN published guidance for the financial services sector just a few weeks after the release of the Memorandum, in the form of the Statement on the Issuance of the Anti-Money Laundering/Countering the Financing of Terrorism (AML/CFT) National Priorities (the “Statement”) and Anti-Money Laundering and Countering the Financing of Terrorism National Priorities (the “AML/CFT Priorities”). The AML/CFT Priorities are applicable to all “covered entities” – financial service providers required to maintain an anti-money laundering program under the BSA – which includes banks, money services businesses, credit card system operators, loan and finance companies, and broker-dealers.[1] While the priorities are not expected to be addressed until the effective date of regulations,[2] we expect covered entities to begin consideration of the priorities in the course of any periodic updating processes. Indeed, FinCEN recommends in their statement that covered entities begin considering how to incorporate the AML/CFT Priorities into their compliance programs.

Echoing President Biden’s earlier policy statements, the eight priorities are (1) corruption; (2) cybercrime, including relevant cybersecurity and virtual currency considerations; (3) foreign and domestic terrorist financing; (4) fraud; (5) transnational criminal organization activity; (6) drug trafficking organization activity; (7) human trafficking and human smuggling; and (8) proliferation financing.[3] A high-level summary of the AML/CFT Priorities is available here.

These updated priorities come on the heels of an already-increasing appetite for white-collar prosecution. The aggressive push from the Department of Justice can be traced back to 2015, when then-Deputy Attorney General Sally Yates issued the Yates Memorandum, which made “[f]ighting corporate fraud and other misconduct . . . a top priority of the Department of Justice,” especially in prosecuting individuals. A year and a half and a change in administration later, the Department of Justice’s priorities turned elsewhere — largely to combatting violent crimes — but not before a new wave of white-collar prosecutions had already begun. As the Wall Street Journal recently documented, one of these cases led a judge to vacate a conviction against a Wall Street executive, remarking that the “government completely overreached,” and that the “lines have to be very clear, because when someone crosses a line and is likely to end up in jail, you want that line to be clear.”[4]  Other judges have remarked that federal authorities have been too eager to grab cash and assets before proving any wrongdoing.[5]  

Examples of judges reaching for the extreme remedy of overriding a jury verdict are increasingly common. The Third Circuit Court of Appeals earlier this year threw out convictions of four former bank executives because the key regulation underlying their convictions was ambiguous,[6] and the Second Circuit will soon decide whether to affirm a New York federal judge’s decisions to toss guilty verdicts against hedge fund executives based on, in that judge’s view, insufficient proof of criminal intent.[7] The Wall Street Journal noted that the federal prosecutors’ normally near-perfect batting average in getting convictions has slipped to just below 80% in Wall Street cases over the past five years. That is undoubtedly because proving intent in such cases, particularly against the backdrop of murky regulations, is challenging. 

But the FinCEN priorities, along with the AMLA and the Memorandum, may indicate an intent by regulators to ratchet up the pressure. Notably, on July 6, 2021, after listing cybercrime as one of the priorities, FinCEN hired Michele Korver, a former federal prosecutor, as its first “Chief Digital Currency Advisor.”[8] Enhanced regulations yet to come will help prosecutors extract resolutions from companies and pursue individual prosecutions through trial. When those lines become more focused, verdicts are more likely to stand.

Next Steps

A robust AML/CFT program likely includes elements of the AML/CFT Priorities, but the FinCEN guidance provides helpful information that covered entities should take into consideration – and that covered entities can use to direct internal resources to specific areas of concern. The AML/CFT Priorities also highlight increased national focus on domestic terrorism and cybersecurity, the latter already front-page news from a recent spate of high-profile and critical infrastructure ransomware and hacking attacks. While compliance with the above AML/CFT Priorities is not yet required, covered institutions are encouraged to begin investigating workable solutions for implementation without overburdening compliance and regulatory teams. Starting early to update policies, procedures, and systems can minimize friction when regulations are finalized and implemented.


[1] Separate statements were published for non-bank financial institutions by FinCEN, and jointly for banks and credit unions by the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration, and the Office of the Comptroller of the Currency. See 31 CFR Chapter X; see also summary of covered entities provided in AML/CFT Priorities, FN 6.

[2] Regulations must be promulgated within 180 days after the establishment of the priorities. 31 U.S.C. § 5318(h)(4)(D) (as amended by the Anti-Money Laundering Act of 2020 § 6101(b)(2)(C)).

[3] Priorities.

[4] Aruna Viswanatha & Dave Michaels, Flaws Emerge in Justice Department Strategy for Prosecuting Wall Street, Wall St. J. (July 5, 2021), https://www.wsj.com/articles/flaws-emerge-in-justice-department-strategy-for-prosecuting-wall-street-11625506658.

[5] The Wall Street Journal Editorial Board, Guilty Until Proven Innocent (July 7, 2021), https://www.wsj.com/articles/guilty-until-proven-innocent-11625697428.     

[6] United States v. Harra, 985 F.3d 196 (3d Cir. 2021).

[7] United States v. Mark Nordlicht, et al., No. 16 CR 640 (BMC), (Dkt. No. 799) (E.D.N.Y. 2019); Second Circuit Docket Nos. 19-3209 & 19-3207. 

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A Trust Relationship Saves Aunt’s TILA, RESPA and FDCPA Claims from Dismissal

The Ninth Circuit held, in a matter of first impression, that a trust created by an individual for tax and estate tax planning purposes does not lose all state and federal consumer disclosure protections when it seeks to finance repairs to a personal residence for the trust beneficiary, rather than for the trustee herself; instead, the loan transaction remains a “consumer credit transaction” under TILA, RESPA and California’s Rosenthal Fair Debt Collection Practices Act. Gillian, Trustee of Lou Easter Ross Revocable Trust v. Levine, — F.3d — (9th Cir. 2020), 2020 WL 1861977 (4/14/2020).

Acting in her capacity as trustee of a trust created by her dead sister, the plaintiff obtained a loan to make repairs to a personal residence occupied by her sister’s daughter.  The district court held, on a motion to dismiss, that because the plaintiff borrower did not intend to live in the house, the loan was not a consumer credit transaction, which TILA defines as a loan extended to a natural person “primarily for personal, family or household purposes.” Both TILA and RESPA are inapplicable to “credit transactions involving extensions of credit primarily for business, commercial, or agricultural purposes.” The Rosenthal Act similarly applies to debt “due or owing from a natural person by reason of a consumer credit transaction,” which it defines identically to TILA.

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Signing the Mortgage Insufficient to Establish RESPA Standing

To sue under RESPA, one must have signed the loan, not just the mortgage.

RESPA creates a cause of action but says only “borrower[s]” can use it. 12 U.S.C. § 2605(f). Accordingly, the Sixth Circuit joins the Fifth and Eleventh Circuits in holding that to have a cause of action under RESPA, a plaintiff must not only sign the mortgage, but also the loan. Keen v. Helson, —F.3d—-, 2019 WL 3226989 (July 18, 2019).

Image by Andreas Breitling from Pixabay.

A “borrower” is commonly understood and defined as someone who is personally obligated on a loan—who is actually borrowing money. Because the plaintiff had never signed the mortgage loan, as her ex-husband had, she could not maintain a claim under RESPA, even though she had an interest in the house that she mortgaged and her husband later transferred his interest in the house to her as part of their divorce, shortly before he died.

The Court noted that Congress could have said that “any person” injured by a RESPA violation could sue, or that “mortgagors” or “homeowners” could sue, but it chose not to do so and specified only “borrowers” could.

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The Plain Meaning of RESPA Regulations

If I should call a sheep’s tail a leg, how many legs would it have?

According to Abe Lincoln, “only four, for my calling the tail a leg would not make it so.” So begins the Eleventh Circuit’s opinion holding the motion to reschedule a foreclosure sale was not a motion for an order of sale within the meaning of the RESPA regulation governing loss-mitigation procedures.

The language of 12 C.F.R. 1024.1(g) prohibits a loan servicer from moving for an order of foreclosure sale after a borrower has submitted a complete loss-mitigation plan. Under the plain language of the regulation, a motion to reschedule a previously ordered foreclosure sale is no more a motion for an order of sale than a sheep’s tail is a leg!

This conclusion is reinforced by the construction canon favored by Justice Scalia, known as the “associated word cannon” in English, but more commonly referred to by learned colleagues as the “noscitur a sociis canon.” (Thank god for high school Latin helping me pass the bar!)

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The Risks of Assembling Consumer Information

In a case of first impression in its circuit, the Second Circuit held that a business may not be liable under the Fair Credit Reporting Act (FCRA) for publishing false information unless it specifically intended the report to be a “consumer report.” Kidd v. Thompson Reuters, —F.3d — (2019 WL 2292190, 5/30/19). It then held that  defendant Thompson Reuters established it did not have the requisite specific intent by showing that at each step in its processes it instructed its users and potential subscribers that its platform was not to be used for FCRA purposes, such as employment eligibility–but only for the non-FCRA purposes of law enforcement, fraud prevention and identity verification–and required them to affirm their understanding of that restriction. Accordingly, the Second Circuit Court of Appeals affirmed the granting of summary judgment to Thompson Reuters, even though its subscriber had used its inaccurate report to determine a job applicant’s employment eligibility.

The take-away: If your business regularly assembles consumer information, distributes it to third parties, and fears it may be used for a FCRA-related end that is not intended, your business should forbid such uses in its subscriber contract, monitor the actual uses of that information, and take adequate measures to stop FCRA-related uses when it learns of them.  

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Borrower’s Death Does NOT Automatically Accelerate a Reverse Mortgage

Does the death of the borrower automatically accelerate a reverse mortgage? In a decision that is good news for reverse mortgage lenders, a recent New York appellate court answered no. In Mortgage Solutions v. Fattizzo, _ AD3d_, (2d Dep’t, May 1, 2019), the New York Supreme Court, Appellate Division, Second Department, considered whether the statute of limitations for enforcing reverse mortgage loans begins to run upon the death of the borrower. Defendant contended that the foreclosure action, filed August 6, 2014, was time-barred by the six year New York Statute of Limitations because the cause of action accrued on the date the borrower died, February 19, 2008.

The Court focused on the language in the reverse mortgage at issue – “[l]ender may require immediate payment in full of all outstanding principal and accrued interest if …” (emphasis added) – and noted that it confers upon the holder of the note and mortgage the option, but not the obligation, to accelerate payment of the debt. The Court held that an affirmative act by the lender was needed to accelerate the debt.

Accordingly, in New York, absent different language in the mortgage, the death of the borrower does not automatically amount to accrual of a cause of action for purposes of the statute of limitations. This is a departure from prior New York case law, although the same conclusion recently reached under Florida law.

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RESPA is a Shield, Not a Sword

RESPA is a Shield, Not a Sword

April 29, 2019

Authored by: Jim Goldberg

In a case of first impression, the Fifth Circuit held that a defendant is not required to plead as an affirmative defense under the Real Estate Settlement Procedures Act that it had complied with Section 1024.41 of the Code of Federal Regulations by responding properly to a borrower’s loss mitigation application. Germain v. US Bank National Association, — F. 3d — (2019 WL 146705, April 3, 2019). It affirmed the dismissal of the borrower’s RESPA claim on a summary judgment motion, based on the following facts.

Image by Nadine Doerlé from Pixabay

After repeated defaults beginning in 2009, the borrower Plaintiff filed three or four loss mitigation applications, asking for loan modifications in 2012, 2013 and 2014, in addition to filing bankruptcy in 2013. Each time, the loan servicer responded to the application properly. When the lender accelerated the loan and scheduled it for foreclosure in 2015, Plaintiff filed a lawsuit. It alleged the Defendants violated RESPA by failing to comply with Section 1024.41(d). That regulation section requires that a servicer who denies a loss mitigation application must notify the applicant of the reason he was denied any trial or permanent loan application option available pursuant to the regulation.

In their Answer to the complaint, the Defendants denied the allegation that they had failed to comply with Section 1024.41(d). The unstated basis for the Answer’s denial was that the loan servicer had complied Section 1024.41(i), which states: “A servicer is only required to comply with the requirements of this section for a single complete loss mitigation application for a borrower’s mortgage loan account.” The Court of Appeals ruled that the denial, without the detail, was sufficient, and affirmed the district court’s determination that the Defendants were not required to plead Section 1024.41(i) as an affirmative defense.

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Loan Servicers’ Obligation to Maintain Appropriate Database Systems

The background to the Eleventh Circuit’s decision in Marchisio v. Carrington Mortgage Services, LLC, — F. 3d — (11th Cir. March 25, 2019)(2019 WL 1320522) demonstrated repeated recklessness by a lender in updating its reporting databases after repeated litigation and settlements.

Image by pixel2013 from Pixabay.

The borrowers defaulted on their home loans in 2008; the loan servicer brought a foreclosure action; in 2009, the parties settled with a deed in lieu of foreclosure that extinguished first and second loans and required the loan servicer to report to the credit reporting agencies that nothing more was due on the loans. The loan servicer failed to correct the credit reporting and continued to try to collect on the nonexistent debt, prompting the borrowers/Plaintiffs in 2012 to file a lawsuit under the Fair Credit Reporting Act. The parties settled the FCRA suit in 2013, with the loan servicer/Defendant agreeing to correct the credit reporting. The loan servicer failed to timely comply with this correction requirement within 90 days and issued three erroneous reports that the second loan was delinquent.

The Plaintiffs then disputed with the credit reporting agencies the reporting of a balloon payment due on the second loan. In response, the loan servicer investigated the dispute. However, because the loan servicer had not updated its database to reflect the settlements, it erroneously verified to the credit reporting agencies that the Plaintiffs were delinquent, and then in 2014 charged them for lender-placed insurance on the property, which the Plaintiffs no longer owned. This led in 2014 to the second lawsuit with the FCRA claim that the 11th Circuit addressed. This lawsuit “caught Defendant’s attention” and immediately prompted it to update its database, correct its previous errors and accurately report the status of Plaintiffs’ second loan, finally.

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SCOTUS Protects Lawyers Seeking Non-Judicial Foreclosures

Editor’s Note: BCLP’s consumer financial services team is a group of specialized lawyers from around the U.S., adept in state court rumbles, courthouse steps foreclosures, and bankruptcy court interludes. They are also deep thinkers in consumer law, and were waiting for this ruling today. If you have a portfolio of consumer loans and want some efficient, value-maximizing handling, give us a call. Here’s the take from Zina Gabsi, from our Miami CFS practice.

Earlier today, the U.S. Supreme Court issued its long-awaited opinion on whether law firms pursing non-judicial foreclosures are “debt collectors” as defined by the Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C. §1692 et seq. Obduskey v. McCarthy & Holthus LLP, Case No. 17-1307 (March 20, 2019). In its ruling, the Court held that a business engaged in no more than a non-judicial foreclosure is not a debt collector under the FDCPA. (Business lawyers around the US breathed a collective sigh of relief.) Instead, the Court held that those pursuing non-judicial foreclosures are subject to the more limited FDCPA restrictions contained in section 1692f(6).

The FDCPA defines a debt collector as “any person … in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or asserted to be owed or due another.” 15 U.S.C. §1692a(6). But the statute also includes the “limited-purpose definition” which states that “[f]or the purpose of section 1692f(6) [the] term [debt collector] also includes any person … in any business the principal purpose of which is the enforcement of security interests.” Thus, the statute creates a set (debt collectors) and a subset (people that only seek to enforce security interests). The subset certainly includes “repo men,” but according to the Supreme Court, the subset also includes lawyers pursuing non-judicial foreclosures. The subset is subject to far less restrictions and mandates under the FDCPA.

The Court considered three factors in coming to its conclusion: (i) the text of the FDCPA itself; (ii) Congress’s intent; and (iii) the FDCPA’s legislative history. The Court explained that but for the limited-purpose definition (the subset), those pursuing non-judicial foreclosure would in fact be debt collectors under the additional provisions of the FDCPA. However, the Court notes that a plain reading of the limited-purpose definition, “particularly the word ‘also,’ strongly suggests that one who does no more than enforce security interests does not fall within the scope of the general definition. Otherwise why add this sentence at all?” Obduskey, at page 8. To interpret the definition of a debt collector under the FDCPA otherwise would render the addition of the “limited-purpose definition” superfluous. Id., at page 9. Furthermore, the Court posited that Congress “may well have chosen to treat security-interest enforcement differently from ordinary debt collection in order to avoid conflicts with state nonjudicial foreclosure schemes.” Id.

Of note, the Court rejected Obduskey’s argument that “McCarthy engaged in more than security-interest enforcement by sending notices that many ordinary homeowner would understand as an attempt to collect a debt backed up by the threat of foreclosure.” Id., at page 13. The Court explained that such notices were likely required under state law in order to pursue the non-judicial foreclosure and therefore the FDCPA’s “(partial) exclusion of ‘the enforcement of security interests’ must also exclude the legal means required to do so.” Id.

Justice Sotomayor wrote a concurring opinion to make two observations: “First, this is a close case, and today’s opinion does not prevent Congress from clarifying this statute if we have gotten it wrong. Second, as the Court makes clear, ‘enforcing a security interest does not grant an actor blanket immunity from the’ mandates of the FDCPA.” She interestingly noted that Congress may not have contemplated the Court’s interpretation because even though States do regulate nonjudicial foreclosures, the FDCPA was enacted “to promote consistent State action to protect consumers against debt collection abuses.”

The holding sheds light (for the moment) on the scope of the limited-purpose exception to the FDCPA’s definition of a debt collector as it relates to nonjudicial foreclosures. “[W]hether those who judicially enforce mortgages fall within the scope of the primary definition is a question we can leave for another day.” Id., at page 12. We will cover that another day too!

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Georgia Supreme Court Weighs in on Director Liability

The Supreme Court of Georgia issued its latest opinion on March 13, 2019 in the continuing litigation over whether former directors and officers of the now defunct Buckhead Community Bank can be held liable for financial losses from commercial real estate loans.

The Georgia Supreme Court had previously advised a Georgia federal court, where the case was filed by the FDIC, that the directors and officers of the bank could be held liable if they were negligent in the process by which they carried out their duties. Following that opinion, rendered in 2014, the case returned to federal court, and a trial was ultimately held in 2016. In that trial, the jury concluded that some of the directors and officers were negligent in approving some loans and awarded the FDIC $4,986,993 in damages.

The trial judge in the case found that the defendants were “jointly and severally liable” for the award, meaning that the entire verdict could be collected from any one of the defendants. The defendants appealed contending that joint and several liability had been abolished by the General Assembly in 2005. The defendants also argued that the trial court should have given the jury the opportunity to apportion the damages among each of the defendants according to their respective degrees of fault. In considering the appeal, the United States Court of Appeals for the Eleventh Circuit again sought direction from the Supreme Court of Georgia on this new issue of law.

On Wednesday, in a 39-page opinion, the Georgia Supreme Court responded, providing answers to some, but not all, of the questions raised by the Eleventh Circuit. The Georgia Supreme Court held that joint and several liability can still be imposed in Georgia on defendants “who act in concert insofar as a claim of concerted action involves the narrow and traditional common-law doctrine of concerted action based on a legal theory of mutual agency and thus imputed fault.” The Supreme Court indicated that this was a very narrow exception to the usual rule that damages must apportioned among defendants.

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